Japan in Their Own Words (JITOW)／日本からの意見

How to Deal with a "Strong Russia" revived?MAGOSAKI Ukeru / Dean, School of Humanities and Social Sciences, National Defense Academy

December 18, 2007

In the Russian Lower House election that took place on December 2, 2007, the government party, United Russia, which slated President Vladimir Putin himself at the top of the eligible candidates, secured a two-thirds majority of the seats. Including the other parties supporting Putin, the President amassed 90 percent of the votes cast. Although the outcome of the coming Presidential election next year is still unknown, it is certain that Russian politics will continue to be led by Putin. The Russian people, who were thrown into the great turmoil after the collapse of the Soviet Union, no doubt give credit to Putin for the resurrection of a strong Russia and its economic growth.

The biggest factor for Putin's victory lies in the economy. Ironically, it is the United States, which should be the country most concerned about the resurrection of a strong Russia, that has contributed to its revival. Had it not been for the current U.S. policy toward the Middle East, including the Iraq war, there would not have been the surge of the Russian economy, nor would a “Strong Russia” have been revived.

Russia today has achieved a miraculous economic rebirth. In retrospect, Russia was under constant economic crisis since the collapse of the Soviet Union up until 1998. In August 1998, the Russian government was confronted with a financial crisis that forced it to suspend repayment of foreign debt for 90 days. At that time, the Japanese business circles had little interest, if any, in Russia. In contrast, Russia's GDP in the first half of 2007 recorded a real growth of 7.8 percent and is expected to continue to grow at the 6-7 percent per annum for the next few years. In addition, Russia's foreign exchange reserves which have rapidly expanded to rank the third in the world, after China and Japan. This economic revival is the biggest single reason why the Run people are supporting Putin.

For the medium term, it is expected that Russia will continue to maintain high economic growth and plentiful foreign exchange reserves in the future. It is the rise in the oil prices that has enabled the substantial increase of the foreign exchange reserves and provided the basis for the stability of the nation What is the appropriate price of oil in the first place? Until 1998, the oil prices had been sluggish. In those days, Iran assumed the oil price to be 15 dollars per barrel, and, when the price rose above it, they put the balance into a fund, thereby setting up a system to fend off insolvency should the oil prices stayed sluggish. Later on, around 2000, Russia set up a similar fund, assuming the oil price to be 25 dollars per barrel. Consumption of oil in China and other countries may increase, but that is not likely to affect the oil prices too much. The present hike in oil prices is attributable to the political uncertainties in Iraq and elsewhere, starting with the Iraq war launched by the United States. Even today, the Japanese oil business circles maintain that there is no economic justification for oil prices above 45-50 dollars per barrel. What underlies the soaring of the oil prices today to the level of 90-100 dollars per barrel is the perception that the uncertainties in the Middle-East will be further aggravated. Thus, whether or not Russia can achieve economic stability and further growth hinges essentially on whether the situation in the Middle East can be stabilized.

So far, the statements made by American political leaders including presidential candidates have been very tough toward such countries as Iran, and fully supportive of Israel. The situation in the Middle East may, if anything, become more unstable, and there is little likelihood of it calming down. Against this backdrop, the announcement on December 3 by the CIA and other American intelligence agencies that Iran suspended its nuclear development in the autumn of 2003 testifies to the healthiness of the American society. Some force is at work to straighten out the distortions in the American society, and it may have a considerable momentum. It may even change the course of the current in the United States that has been moving towards further confrontation with the Islamic world. Which side will win the tug of war between many American politicians who are basically pro-Israel and inclined toward a confrontation with the Islamic world on the one hand and that part of the public opinion and government agencies which seek cool-headed policies on the other? This will really be the biggest focal point for the next American presidency.

What will become of the oil prices depends on the influence that President Putin wields. Suppose the oil prices remain high. Putin will not yield to Japan about the territorial issue, nor will the Russian people allow it. Under such circumstances, how will the Russo-Japanese relations be? The factor for change lies in the economic relations between Japan and Russia. Seeing the Russian economy boom, Toyota Motors and many other Japanese companies have decided to make investments in Russia. I am not sure to what extent the Japanese enterprises are aware of this, but there are "grabbing hands" lurking in both the government circles and the Mafia, the shadowy power.

It will not be possible for Japanese private companies to deal with these "grabbing hands" alone. The "grabbing hands" are stronger than many Japanese people imagine. To deal effectively with them, it is essential for the Japanese side to establish a much closer relationship with Russia's Presidential Executive Office, which has overwhelming power in the country. Actually, Japan is fully capable of setting up such a relationship. During the period in which the Russian economy was in turmoil, there was very little done about the Russian manufacturing industry. Now the Presidential Executive Office is contemplating a state-led industrial policy. Which country can claim to have succeeded in state-led industrial policy while accepting the market principle ? It is none other than Japan. The post-war Japan achieved a singular success in industrial policies under the leadership of the government, gradually shifting priorities from energy to heavy industry and then to knowledge-intensive sectors. This Japanese experience provides something that the Russian presidency can certainly emulate. It would therefore be of great importance for both Japan and the Russian presidential office to establish cooperative relations regarding economic and industrial policies. That would be the best means of ensuring that the Japanese companies investing in Russia can avoid being faced with severely challenging situations and earn reasonable profits. The Japanese business circles and the government need to work closely in tandem over Russian policy.

The author is the Dean of the School of Humanities and Social Sciences, the National Defense Academy, and former Ambassador to Iran.